Extended Risk of Forfeiture

[jpod]

Executive and Employer entered into a 457(f) agreement years ago. Vesting date (and payout date) is 12/31/02.

Executive DOES NOT have a rolling risk of forfeiture right. However, Executive and Employer would like to amend the agreement to defer vesting (and payment) until 12/31/04, in exchange for Employer's commitment to credit Executive with a substantial amount of additional deferred compensation. Therefore, both the deferred compensation accrued as of 12/31/02 and the additional deferred compensation will be at risk for another two years.

I believe this works under 457(f). Any thoughts?

[mbozek]

While the IRS has opposed the renegotiation of deferred compensation agreements after they have been effective so as to delay taxation of benefits past the date agreed to in the contract, courts have consistently permitted such a delay of taxation as long as the benefits are not vested or payable to the particpant as of the date of the renegotiation. See Veit (1944) and Martin cases. Renegotiation of the payment due the excutive to a later date in return for a greater amount is a legitimate business purpose with consideration on both sides. E.g., the executive will get a greater amount but risks loss of the funds by exending the deferral. The employer gets to keep the money for an extended period but must pay the employee more in the future for the employee's forbearance in collecting the amount due. You need to get tax counsel involved to structure the arrangement correctly and should get board approval for the extension of the deferral.